Opinion: PokerStars Should Not Receive a New Jersey Gaming License

John Mehaffey March 5, 2013 1359 Reads

I know this is a controversial opinion so I want to at least stipulate that I have the utmost respect for PokerStars.  I played there almost exclusively before Black Friday and I have never questioned the company’s integrity for a second.  No online gaming company has ever been so involved with their players and Black Friday proved that they can account for all of the money on deposit at any given time.  With that said, there are many reasons, in my opinion, for PokerStars to be excluded from the US without a blackout period.

Some may argue that excluding PokerStars is protectionist and immoral.  They deserve equal access to the newly regulated US market that any other company will be allowed.  That may be the case in a perfect world, but due to the UIGEA, the playing field was not level and PokerStars used this to their advantage.  PokerStars did not have to worry about competing against WSOP.com or Bellagiopoker.com for five years, the US gaming companies now want their fair chance.

Offshore companies were at a distinct advantage.  They could take a chance and offer online poker directly to US residents with little fear of being prosecuted and what seemed like very little to lose at the time.  US casino companies such as Caesars Entertainment, MGM Resorts and Boyd Gaming did not have this luxury.  That is because these companies would have risked their gaming licenses to have accepted US online poker and casino players.  Companies like PokerStars did not have to make any such risk.

While PokerStars was raking $1 million or more each day from US players, Boyd Gaming, Caesars Entertainment and MGM Resorts were flirting with bankruptcy.  One could argue that some of this money would have found its way into casinos across the US where companies have struggled to survive.

Over five years the total amount of US rake generated by PokerStars was in the range of $2 billion.  PokerStars never paid any licensing fees or state taxes on this money.  Even when they settled with the DOJ the forfeited money went directly to the federal government to cover what could be considered corporate income taxes.

States, who tax gross gaming win at rates between 6.75% and 55%, are typically the main beneficiary of gambling.  They are unlikely to see any of that settlement money.

Bad Actor Clauses

Of all the states that have debated online poker bills, New Jersey is the only one that has willfully omitted a bad actor clause.  These clauses restrict access for companies that failed to abide by existing laws predating regulation.  There are multiple reasons for states to include this clause.  Some of it is protectionist, but the main reason is that if a state is going to have a licensing process then that process needs to be recognized by all.  A company that sets up a back room casino and operates for years without a license is no different than what PokerStars did post UIGEA.  PokerStars did not pay licensing fees or taxes to the states that they operated in.  Of course, they were not given this choice due to the legal issues surrounding their business.

We can argue that PokerStars would have been willing to pay taxes to make their business legal but that is besides the point.  Companies have been trying to legalize casinos in a number of states across the country.  These companies did not just open a casino and wait to get busted, they lobbied the state government until they got what they wanted.  The companies then got licensed and opened casinos.  PokerStars did the exact opposite , they operated hoping either the law would change or they would never get challenged.

One other thought on bad actor clauses is that PokerStars will likely not be able to receive a license in states that pass online poker regulations with one included.  This means that while PokerStars could potentially operate in New Jersey, they may be excluded from interstate pacts.  This could put New Jersey at a disadvantage.  We need to remember that most lawmakers are not anywhere near as educated as people that are reading this article.  Many will already have preconceived opinions that PokerStars is a “criminal enterprise” as described by the AGA in their brief to the New Jersey Casino Control Commission.  I certainly dispute that description of PokerStars, but I can see how a random state lawmaker or gaming commission member could have that opinion. This in itself could doom PokerStars.

Licensing Requirements

Each casino state has strict licensing requirements.  Interactive licenses are certain to carry similar requirements.  Companies that qualify must have a history of legitimate business dealings.  New Jersey is no different, even without a bad actor clause.

Steve Wynn left Atlantic City because of what he considered to be harassment by the Casino Control Commission.  He was accused of having ties with alleged mobsters.  Wynn denied these accusations and eventually sold his Golden Nugget property in Atlantic City.  This property is now known as the Atlantic Club, the exact property PokerStars is looking to acquire.

MGM Resorts also ran into problems with the New Jersey Casino Control Commission.  The State has accused MGM Resorts, who owns 50% of the Borgata, of having organized crime ties through their Macau partner Pansy Ho, whose father Stanley Ho is a casino tycoon in Macau.  The State alleged that Stanley Ho could potentially influence MGM Resorts’ partnership with his daughter.  MGM Resorts first decided to sell its 50% stake in Borgata but has since changed course and has once again petitioned New Jersey to reconsider its licensing status.

So casino giants like Steve Wynn and MGM Resorts ran into issues with their New Jersey gaming license, but PokerStars is suitable?

Companies Decided Their Future after UIGEA

I was as heavily involved in the industry when the UIGEA passed in 2006 as I am today.  Dozens of online poker companies were forced to decide if they would stay in the US market.  The ones that left the market clearly stated that they felt it was the best move for their future business.  They felt that continuing to accept US players would prevent them from entering the market upon regulation.  Party Poker, Ongame, Entraction and iPoker all made this sacrifice.  All of these companies are looking to enter the Nevada online poker market.  PokerStars is the only company that refused to leave the US market post-UIGEA that has attempted to receive a license.

Not Trying to Disrespect PokerStars

I think PokerStars and all other online gaming companies were cheated by Bill Frist and the others responsible for the last minute inclusion of the UIGEA in the Safe Port Act.  The law is the law though.  Even without the UIGEA it would be hard to argue that operating an unlicensed online poker room was legal in any state, even if a state law did not specifically outlaw online gambling.  All states with casinos require licenses for anyone accepting a bet or operating a poker game commercially and states without casinos make commercial poker games outright illegal.  PokerStars may not have any defense in most of these states.  In the eyes of the law, this may be no different than a secret poker room or a craps game held in the back of a bar.

Anyone that was known to have offered unlicensed or illegal brick and mortar gambling could not buy themselves a back door to a casino license, why is PokerStars any different?

A point has been made about the 2,400 jobs at Atlantic Club that would be lost in a shutdown of the casino.  I certainly feel for these employees and hope that online gambling offered by other Atlantic City properties will create positions for these employees should they need to look elsewhere for a job.

If PokerStars gets a license in New Jersey then I will be happy for them.  This opinion is not based on any ill will or anger towards PokerStars.  In fact, I am still impressed that I received my sizable balance from them in just a couple of weeks after Black Friday and that all US players got paid.  I want to see them succeed in the US but I can clearly see the point made by the other casino companies.  This article is just an opinion seeing both sides of the argument.

Online poker can happen with or without PokerStars.  Some players seem to think that PokerStars getting a New Jersey license would mean that US players could once again play the international player pool.  If that ever happens, it is years away.

I published a similar opinion on December 10, 2012.  The opinion still has not changed.

(Edited to correct wording in 15th paragraph)

 

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